With Ethereum Improvement Proposal (EIP) 1559, the London hard fork introduced significant changes to Ethereum’s transaction fee mechanism. Users now pay a base fee which is then burned, effectively removing ether from circulation forever.
This approach significantly affected the supply of the token, resulting in a monthly consumption rate of approximately 146,000 ETH.
London’s Hard Fork and its deflationary impact
Integrated into the Ethereum network on August 5, 2021, the London hard fork it brought a paradigm shift in the transaction fee structure of cryptocurrency.
Through EIP-1559, the network introduced a unique mechanism that involved burning a significant portion of transaction fees, known as the “base fee.” This innovative approach was aimed at countering Ethereum inflation while providing block rewards and priority fees to miners.
As a result, the base fee is permanently removed from circulation, leading to a deflationary effect on the token supply.
The scale of the burn has been massive, with more than 3.46 million ETH, worth $6.68 billion, wiped out since the London hard fork went into effect. This translates to an average monthly consumption rate of over 146,000 ETH over the 710-day period following the update.
146,000 ETH burned per month | Source: Beaconcha.in
Ethereum’s deflationary path effectively offset the issuance of new tokens, slowing its supply growth by about 0.1% annually.
Top Contributors to The Ethereum Burn
The main factors driving the Ethereum burn phenomenon include regular ETH transfers, non-fungible token (NFT) transactions on Opensea, and activities on the Uniswap decentralized exchange.
Regular ETH transfers accounted for the most substantial reduction in supply, leading to the incineration of almost 300,000 ETH.
Uniswap v2 follows close behind, with $56.5 million worth of ETH burned since the hard fork, while Tether stablecoin transfers contributed to the destruction of $50.5 million worth of ETH.
ETH price struggles to hold $1,900 support | Source: ETHUSD on TradingView.com
Blockchain gaming platform Axie Infinity and Uniswap v3 each burned $32 million and $30 million worth of ETH, respectively.
At the same time, the amount of ETH staked on Ethereum beacon contract has also been increasing. It now sits at over 26.87 million ETH, which translates to a dollar value of $51.35 billion.
With Ethereum’s supply at 120.2 million, it means that more than 11% of its sSupply is currently locked in while the burn continues to take coins out of circulation.
Both of these developments combined could see the circulating supply of the digital asset drop dramatically, leading to an increase in the price of ETH as time goes on.
ETH is currently trading at a price of $1,903 at the time of writing, which is up 0.72% over the past day.
Featured Image from iStock, Chart from TradingView.com